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I am looking to get into a new savings vehicle for moderate term savings with an overall eye on total growth. The vehicle does not need to be as liquid as a bank savings account, and hopefully has a lot more earnings potential as well.
I would still like it to be somewhat liquid, offer the chance of good growth, and I am willing to accept some moderate risk. The money going in will be above and beyond my appropriate emergency fund savings (which are bank saved for better liquidity), but may be money I will want to pull some out of at times (as well as frequently make additions to). As such, I do not plan on making it an IRA, or something else that may place limits on how/when it is used.
I was really thinking of using a growth mutual fund. Although it hold some risk due to overall market volatility, my long term plan is to grow it over the course of a number of years which should balance out the short term volatility. Also it should not have large expenses associated with it, and my expectation is that it will be reasonably liquid enough if I do have a need to draw some from it.
Does this sound reasonable or should I be looking at something else?
Do you have the option of an employer matched 401K or IRA? That's typically a guaranteed 50-100% return with only limited risk. But, as you said, it gives you less flexibility and immediate access to your money ... which is not altogether a bad thing.
Unless one already has a 401K or IRA, it is best to start one and save 'toward retirement', than put one's 'retirement and other savings' in a more liquid vehicle and then contribute/withdraw at will. Most 401K's/IRA's have a self-directed feature that allows you to take as much risk as you like. If necessary, one can 'borrow' from a 401K/IRA, without penalty (but, with certain restrictions).
Once one has an IRA established, equities typically offer a higher rate of return, plus liquidity. There are a number of online brokerages who will make trades for $7-$8. If your plan is to level-out the short-term volatility, many people select a few good stocks and then simply buy them on a regular basis, whether the price is up or down.
I am looking to get into a new savings vehicle for moderate term savings with an overall eye on total growth. The vehicle does not need to be as liquid as a bank savings account, and hopefully has a lot more earnings potential as well.
I would still like it to be somewhat liquid, offer the chance of good growth, and I am willing to accept some moderate risk. The money going in will be above and beyond my appropriate emergency fund savings (which are bank saved for better liquidity), but may be money I will want to pull some out of at times (as well as frequently make additions to). As such, I do not plan on making it an IRA, or something else that may place limits on how/when it is used.
I was really thinking of using a growth mutual fund. Although it hold some risk due to overall market volatility, my long term plan is to grow it over the course of a number of years which should balance out the short term volatility. Also it should not have large expenses associated with it, and my expectation is that it will be reasonably liquid enough if I do have a need to draw some from it.
Does this sound reasonable or should I be looking at something else?
You can always just go into mutual funds and buy a balanced fund. They have less volatility than 100% stock but also less long-term growth potential.
You can always just go into mutual funds and buy a balanced fund. They have less volatility than 100% stock but also less long-term growth potential.
This is what I was going to say.
I think Vanguard Wellesley Income might be a good choice if you might need some or all of the money in the next 5 years. It's 60% bonds and 40% dividend paying stocks...more conservative than you were talking about. But a growth oriented fund is just not appropriate for your liquidity needs, IMO. Wellesley Income is cheap. It charges a .25% expense ratio.
The next risk level up would be Vanguard Wellington. It is about 65% stocks and 35% bonds/cash. It is more volatile than Wellesley Income but also has better returns. It charges .26%.
Both funds lower the expense ratio to .18% if you have $50,000 invested in them.
It's trailing most other balanced funds year to date, but it can't out perform all the time. It's still a long term winner, IMO. Wellington's expense ratio is competitive with index funds, so it really doesn't have to work too hard to achieve category beating returns.
Both Wellington and Wellesley are good funds but they are not tax efficient. I would recommend against them for a taxable account.
Personally I don't even invest in them in my IRA/401k accounts but I like managing my own balanced fund of equity and bond funds (so I basically created my own Wellington/Wellesley fund myself).
Both Wellington and Wellesley are good funds but they are not tax efficient. I would recommend against them for a taxable account.
Personally I don't even invest in them in my IRA/401k accounts but I like managing my own balanced fund of equity and bond funds (so I basically created my own Wellington/Wellesley fund myself).
You could be right but I have found most people are bad at doing what you're doing and they don't like doing it, either.
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